Making Tax Digital: record keeping and software

Record keeping under MTD

As it stands, there is no indication from HMRC of any changes to either the information businesses will be required to submit or to any deadlines for filing information and making VAT payments.

Submissions will still need to be made to HMRC at least quarterly, however, under the new MTD regime, this will need to be done through the business’ Digital Tax Account. It will still be possible under MTD to submit returns to HMRC monthly.

The key change under MTD relates to how businesses record, calculate and submit VAT return information.

Under the new regulations, businesses must record all transactions digitally, keep those records in “functional compatible software” (i.e. software and spreadsheets that can connect to HMRC via an approved interface) and preserve digital records in compatible software for up to six years.

Businesses using spreadsheets to maintain records may still be able to do so under MTD, but HMRC has advised that such systems will need to link to and be submitted digitally through MTD-compliant software.

HMRC has already confirmed that the new requirements will not mean businesses need to retain their invoices and receipts digitally but they must retain information relating to:

• The business name, principle place of business and VAT registration number • Details of which VAT accounting scheme the business uses • The VAT account that each VAT registered business must keep by law • Information relating to supplies made and received, broken down into sub-totals for each rate of VAT (many businesses will not currently capture this level of detail).

MTD-compatible software

If a business currently uses a software package to record all VAT records, then it is recommended they should determine that a) the software is MTD-compliant and b) that it is using a version of the software that is MTD-compatible under the new regulations. Assuming the package is MTD compliant, then there should be minimal changes needed under MTD.

However, if the software used is not compliant, then the business will need to explore the available options in order to comply under MTD and well in advance of the April 2019 deadline.

For those businesses which do not currently use software to maintain their records, the new regime will mean there could potentially be significant changes needed to change or update their business systems and working practices to allow the transition from a manual to a digitalised process.

Software requirements

Businesses must use software that can connect to HMRC’s systems via an Application Programming Interface (known as an API) in order to comply fully with MTD. As such, the software must be able to:

• Keep and preserve digital records in accordance with MTD regulations • Create a VAT return with digital information held by the software in order to send this information electronically to HMRC • Provide certain VAT data albeit on a voluntary basis to HMRC • Receive information from HMRC via the API platform with regard to an entity’s compliance with obligations under MTD regulations.

In the next blog I will be looking at penalties and special cases.

If you want to discuss any of the points raised in this blog please get in touch with me here, or:

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